Robin Hood vs. Adam Smith

February 23, 2013

In Paul Ryan's response to the State of the Union, he said, "What America needs is not Robin Hood but Adam Smith." As you will recall, the mythical Robin Hood stole from the rich and gave to the poor. The economist Adam Smith believed in a free and competitive marketplace. Unfortunately, the last Republican to understand Adam Smith's observations about monopolies was the trust-busting president, Teddy Roosevelt.

Republicans rarely see a corporate merger they can't promote, even though it reduces competition and encourages crony capitalism. Rarely are the economies of scale passed on to the consumer. Frequently the resulting mega-corporations influence politicians and prevent new competitors from entering their marketplace.

To Paul Ryan's credit, he noted that Adam Smith explained how the marketplace can reach an equilibrium price (natural price) when there is competition through forces of supply and demand. An example is the cost of men's haircuts in the Upper Peninsula, which in our area range from $8 to $15. Barbers can make a living but rarely get rich. There is no government price control. In a competitive market, consumers win.

Adam Smith coined the phrase, "Wretched Spirit of Monopoly"in his book, Theory of Moral Sentiments. And, in The Wealth of Nations he stated that monopolies have the capacity to raise the selling price above the competitive or natural price. Translated, that means we are left with limited choices between AT&T or Verizon, Charter or Dish TV, Blue Cross or Kaiser Permanente. The result: consumers have higher prices and poorer service. That is good for the stock holders and bad for us consumers.